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Does board demographic diversity constrain related party transactions? Evidence from India

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  • Mani, Satya Prakash
  • Bansal, Shashank

Abstract

This study examines the effects of board demographic diversity on expropriative and propping related party transactions (RPT) of Indian listed firms. We find a significantly negative relation between the board demographic diversity and expropriative RPT, indicating the monitoring role of board diversity in mitigating expropriative RPT. This effect is dominant among firms with weaker shareholder activism and lower institutional ownership, highlighting that board diversity mitigates expropriative RPT where there are higher agency problems. The effect is also prominent in the absence of family directors on the board and lower founder ownership, indicating that board diversity mitigates expropriative RPT when there is less influence of founders on the board. In contrast, we find a significantly negative relation between board diversity and propping RPT for firms with family directors on the board and higher founder ownership, indicating that board diversity mitigates propping RPT where there is higher founder influence in the firm. The effect is also prominent for firms with lower institutional investors and lower leverage, indicating that board diversity mitigates propping RPT when there are weak external governance mechanisms. Our finding has important implications for regulators.

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  • Mani, Satya Prakash & Bansal, Shashank, 2025. "Does board demographic diversity constrain related party transactions? Evidence from India," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:pacfin:v:90:y:2025:i:c:s0927538x24004050
    DOI: 10.1016/j.pacfin.2024.102653
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